Day 14 of the Iran conflict, Goldman Sachs trading chief: The market outlook remains bleak, "I remain cautious"

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The Iran conflict has entered its 14th day. Oil prices have returned above $100 per barrel, both interest rates and stocks are under pressure. Rich Privorotsky, Head of One-Delta Trading Desk at Goldman Sachs, issues a warning: The current market has neither a clear turning point nor any sign of fundamental improvement; fundamentals continue to deteriorate.

Since the outbreak of conflict, the Strait of Hormuz remains partially blocked, pushing oil prices above $100 per barrel. U.S. Treasury yields continue to rise, U.S. stocks are slowly bleeding, and the overnight rebound in emerging markets after yesterday’s turmoil is gradually fading. In his latest market assessment, Privorotsky writes: The longer the conflict drags on, "the worse the eventual outcome will be."

Market sentiment indicators have turned broadly pessimistic. The AAII bull-bear spread is down to -14, CNN Fear & Greed Index is at 21. Although retail inflows remain positive and stock buybacks continue, providing some technical support, Privorotsky clearly states: "Sentiment and positioning support a rebound, but fundamentals make me worried."

Interest Rates & Credit: Late Cycle Tightening Signals Emerge

Privorotsky points out that the current yield curve exhibits classic late-cycle tightening characteristics—yield curves continue to flatten as bond yields rise. Energy prices are the core driver of this repricing, and historically this combination is destructive for stock risk assets, especially impacting Russell index constituents and the financial sector more notably.

Cracks are widening in the credit market. Privorotsky notes that about six seemingly unrelated credit events have occurred in succession, with private funds gating (suspending redemptions) particularly noteworthy—he calls this "a serious red alert signal". He uses investment-grade credit spreads, S&P 500 Index, and Euro Stoxx 50 Index relative performance as core reference indicators, believes credit market stress is "slow moving, but it won’t disappear".

Meanwhile, his macro model shows that in late-cycle tightening environments, the dollar tends to be the biggest winner, but this assessment is highly dependent on oil price movements.

Europe: Structural Risks Lurk Behind Brief Outperformance

European equities slightly outperformed U.S. stocks over the past few trading days. Privorotsky attributes this to short squeeze effects following overcrowded short positions, and some global funds rotating in. Yesterday’s market showed marked deleveraging characteristics—momentum factors underperformed while mainstream short targets were forced to cover and rise.

However, Privorotsky believes European market pricing is clearly skewed, mainly because structural impacts of natural gas prices have not been fully priced in—December TTF natural gas futures are approaching historic highs. He warns that the structural upward shift in oil prices is quietly feeding into corporate earnings forecasts, and this pressure will continue to accumulate.

AI Valuations Reshaped: Growth Stocks Face Deep Questions

Another key risk Privorotsky highlights comes from the AI sector. He acknowledges that innovation in AI technology hasn’t stalled, progress in self-regressive and self-learning features is impressive, but this precisely triggers deep doubts on the terminal valuation multiples of growth stocks and SaaS assets.

"No one really knows the long-term value of these assets," he writes. "So even if per-share earnings keep growing, every rebound is sold off, because investors worry what they’re holding may be stranded assets." He cites Nvidia’s valuation multiples compressing and SK Hynix’s PE ratio trends as evidence, and names Oracle and Adobe as stocks to closely watch in the near term.

Geopolitical Game: Iran “Shorts” the S&P 500 with Low-Cost Means

On the geopolitical front, Privorotsky puts forward a core judgment that’s hard to disprove: Iran, using a small number of low-cost drones and speedboats, can maintain partial blockade of the Strait of Hormuz for a considerable period, suppressing 2-5 million barrels per day of oil supply from the market at extremely low cost.

He believes the current financial market impact is not enough for the U.S. to abandon its strategic goals, nor does Iran think it has caused enough damage to gain maximum negotiating leverage. Against this backdrop, Iran is motivated to extend the battlefield into financial markets, not just the military arena.

Privorotsky ends with a self-mocking remark: "The U.S. is fighting a kinetic war in Iran, while Iran is waging a war against the S&P 500."

Professional institutional investors generally hold hedged positions. The mainstream view is that once financial market stress is too high, the 'Executive Put' will bring the conflict to an abrupt end. But Privorotsky remains cautious: "I am cautious."

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